Gifting to Children and Grandchildren: Exclusions, 529s and Basis

$19,000 per recipient in 2026, to as many recipients as you like (IRS Rev. Proc. 2025-32). A married couple can give $38,000 to each child, each child's spouse and each grandchild. Gifts within the exclusion need no gift tax return and do not touch your lifetime exemption. The donor is the one responsible for any gift tax; the recipient owes nothing and does not report the gift as income (IRS).

The exclusion applies to gifts of a present interest, meaning the recipient can use the money now. Outright gifts of cash or securities qualify. Gifts to most trusts are future interests and require a gift tax return even when small, unless the trust is drafted to qualify. Gifts to a spouse who is a U.S. citizen are unlimited. Gifts to a spouse who is not a citizen have their own limit, $194,000 in 2026.

For a large family the annual exclusion alone moves serious money. A couple with three married children and six grandchildren has 12 potential recipients and could give $456,000 a year without filing anything. Few families should give that much, but the capacity exists.

You file a gift tax return and use part of your lifetime exemption, and in nearly every case no tax is due. For 2026, the basic exclusion amount that shelters lifetime gifts and your estate at death is $15,000,000 per person, set by the One Big Beautiful Bill Act and adjusted for inflation from 2027 (IRS Rev. Proc. 2025-32). A married couple can shelter $30 million. The generation-skipping transfer exemption, which applies to gifts to grandchildren and later generations, is also $15 million.

You must file Form 709 if you give anyone other than your spouse more than $19,000 in a year, if you give a future interest of any amount, or if you and your spouse elect to split gifts. Spouses cannot file a joint gift tax return; each files their own (IRS Instructions for Form 709). The return is due by April 15 of the year after the gift, and an extension of your income tax return extends it too.

Gift splitting is useful when one spouse holds most of the assets. If Harold writes a $76,000 check to his daughter, splitting treats it as half from each spouse, so $38,000is excluded and the remainder reduces each spouse's exemption equally. Both must consent on the return.

Because those payments are free of gift tax without limit and leave your annual exclusion untouched. The gift tax does not apply to tuition paid directly to a qualifying school for someone's education, or to payments made directly to a provider of medical care for someone (IRS Instructions for Form 709). The payment must go to the school or provider, not to the student or patient.

The details matter. The education exclusion covers tuition only: books, supplies, room and board are gifts to the student and use the annual exclusion. Contributions to a 529 plan do not qualify for the education exclusion (IRS). The medical exclusion covers diagnosis, treatment, prescriptions and health insurance premiums, so paying a grandchild's health insurance or an adult child's surgical bill directly is outside the gift tax system entirely.

For grandparents, private school or college tuition paid straight to the school is one of the most efficient transfers available. You can pay a grandchild's $60,000 tuition bill and still give the same grandchild $38,000 as a couple in the same year.

If you contribute more than $19,000 to a 529 plan for one beneficiary in a year, you can elect to treat up to $95,000 of it as if you had made it evenly over five years, using five years of annual exclusions at once (IRS Instructions for Form 709). A married couple can each make the election, so $190,000 can go into a grandchild's 529 in 2026 without touching either lifetime exemption. You make the election by checking the box on Schedule A of Form 709.

Two consequences follow. First, during the five years you have no annual exclusion left for that beneficiary, so additional gifts to that grandchild, other than tuition paid directly, use lifetime exemption and need a return. Second, the election is reported one-fifth at a time: each year you file a Form 709 for other reasons, you report that year's share, so keep the original return with your estate papers where your executor can find it.

The advantage of front-loading is time in the market: $190,000 invested for a 4-year-old has 14 years to grow tax-free before college. As the account owner, you also keep control: you can change the beneficiary to another family member, and you decide when money comes out. Use our College Savings Calculatorto see what a lump sum grows to by the grandchild's freshman year compared with what college will likely cost.

Give cash and assets with little gain; leave low-basis assets for your heirs to inherit. When you give property, the recipient takes your basis: if you bought stock at $10 a share and give it when it is worth $100, the recipient owes tax on $90 of gain when they sell (IRS). Property inherited at death generally takes a basis equal to its fair market value on the date of death (IRS Publication 551), so the $90 of gain is never taxed.

Assets that have fallen in value are the opposite trap. If the value at the time of the gift is below your basis, the recipient's basis for figuring a loss is the lower market value, so the loss largely disappears (IRS Publication 551). Sell losing positions yourself, take the loss on your own return, and give the cash. Our tax-loss harvesting guide covers the mechanics.

There are exceptions. If the recipient is in the 0% long-term capital gains bracket, giving appreciated shares lets them sell with little or no tax, though for students under 24 the kiddie tax can apply. Estates large enough to face estate tax may benefit from giving appreciating assets early to move future growth out of the estate, accepting the carryover basis. And retirement accounts are their own category: IRAs get no new basis at death and heirs pay income tax on withdrawals, which is why they are often the best assets to leave to charity. See our guides to the inherited IRA 10-year rule and qualified charitable distributions.

With a cash gift, a loan, or both. A down payment gift is the simplest: split between spouses, $38,000 is excluded and anything more is reported on Form 709 and reduces your exemptions. Mortgage lenders typically ask for a gift letter stating the money does not need to be repaid, so decide in advance whether it is a gift or a loan.

A family loan keeps the money in the family balance sheet. To avoid being treated as a partial gift, the loan should charge at least the IRS applicable federal rate for its term, be documented with a signed note and a repayment schedule, and ideally be secured by the home so the child can deduct the interest. You can then forgive up to the annual exclusion each year, turning the loan into a gift gradually. The note matters for fairness too: an unpaid loan at death is an asset of your estate that your executor must collect or offset.

Giving the family home itself during life is usually a mistake for tax reasons, because the child takes your low basis. If the goal is for a child to have the house eventually, leaving it at death or through a revocable trust generally produces a much better tax result. Our downsizing guide covers the home sale exclusion and basis rules in detail.

Write down what you give and decide in advance whether it counts against an inheritance. Unequal gifts are common and often right, since needs differ, but unexplained ones cause lasting family damage. Three tools help. A simple gift ledger listing date, recipient, amount and purpose. An equalization clause in your will or trust that treats specified lifetime gifts as advances on a child's share. And a letter to your children explaining the principle, whether it is equal dollars, equal opportunity or help according to need.

Grandchildren add a wrinkle. If one child has four children and another has one, per-grandchild gifts send four-fifths of the money to one branch. Some families accept that; others give equal amounts per child's family and let each family divide it. There is no right answer, only a decided one. Our Estate Planning Worksheet is a practical place to list gifts alongside beneficiary designations.

Finally, keep enough. Money given away cannot be recalled for a long-term care need or a bad decade in the markets. Before making large gifts, test your plan without the money you are giving: if your withdrawal rate stays comfortable in the Retirement Withdrawal Calculator and a care reserve is still in place, give. If Medicaid might ever be part of your plan, remember that gifts made in the 60 months before an application can delay coverage (CMS); see our long-term care guide.

Harold is 78 and Susan is 75. They have a net worth of $4.8 million: $2.1 million in IRAs, $1.4 million in a taxable account (including a $400,000 position in one stock bought for $40,000), $400,000 in cash and bonds, and a $900,000 house. Social Security pays them $70,000 a year and they spend $140,000. They have three children in their 40s and 50s and six grandchildren from 4 to 19. They are hypothetical. Their estate is far below the $30 million they can shelter, so federal estate tax is not the issue. Using their money well is.

Can they afford it? Their investments fall from $3.9 million to about $3.0 million. Their spending need from the portfolio is $70,000 a year ($140,000 less Social Security), a withdrawal rate of about 2.3% afterward, and they still hold a $400,000 care reserve inside the taxable account as described in our long-term care guide. They check it in the withdrawal calculator before writing the checks.

Which assets they use.They fund the gifts from cash, bonds and high-basis funds in the taxable account. They do not give the $400,000 stock position. If Daniel received those shares and sold them, he would owe tax on $360,000 of gain, about $54,000 at 15% before any net investment income tax or state tax. If the shares pass at death instead, the gain is erased. The IRAs stay put: they will fund Harold and Susan's later years and required distributions, and part is earmarked for charity through qualified charitable distributions.

The paperwork. Harold and Susan each file a Form 709 for 2026by April 15, electing gift splitting for the gifts to the children and the five-year 529 election for the two grandchildren. They add each gift to a one-page ledger kept with their estate documents, and their attorney adds an equalization clause so the three children's gifts are treated as equal advances. Because the other four grandchildren receive nothing this year, they plan annual-exclusion gifts to those 529s over the next several years.